United States Tax Court

T.C. Memo. 2022-6

NORMA L. SLONE, TRANSFEREE, ET AL.,

Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent1

—————

Docket Nos. 6629-10, 6630-10, Filed February 7, 2022.

 6631-10, 6632-10.

—————

David R. Jojola, Stephen Edward Silver, and Derek W. Kaczmarek, 

for petitioners.

Arthur T. Catterall, Rachael J. Zepeda, William G. Bissell, Rick V. 

Hosler, and Doreen Marie Susi, for respondent.

SUPPLEMENTAL MEMORANDUM OPINION

LAUBER, Judge: These cases involve the assertion by the 

Internal Revenue Service (IRS or respondent) of transferee liability 

against petitioners as transferees of a corporation that was stripped of 

its assets and left unable to satisfy its Federal tax obligations. In 

Slone III this Court ruled that petitioners were not transferees under 

1 This opinion supplements our previously filed opinion Slone v. Commissioner

(Slone III), T.C. Memo. 2016-115, 111 T.C.M. (CCH) 1556, supplementing Slone v. 

Commissioner (Slone I), T.C. Memo. 2012-57, rev’d and remanded, Slone v. 

Commissioner (Slone II), 810 F.3d 599 (9th Cir. 2015), rev’d and remanded, Slone v. 

Commissioner (Slone IV), 896 F.3d 1083 (9th Cir. 2018). Cases of the following 

petitioners are consolidated herewith: Slone Family GST Trust, UA Dated August 6, 

1998, Transferee, D. Jack Roberts, Trustee, docket No. 6630-10; James C. Slone, 

Transferee, docket No. 6631-10; Slone Revocable Trust, UA Dated September 20, 1994, 

Transferee, James C. Slone and Norma L. Slone, Trustees, docket No. 6632-10.

Served 02/07/22
2

[*2] the Arizona Uniform Fraudulent Transfer Act (Arizona UFTA) and 

section 6901.2 In July 2018, reversing our Court for the second time, the 

U.S. Court of Appeals for the Ninth Circuit held that petitioners are 

liable for the transferor corporation’s tax obligations. Slone IV, 896 F.3d 

at 1088. The IRS has calculated these numbers to include a deficiency 

of $13,494,884, an accuracy-related penalty of $2,698,997, and interest 

of $8,559,729, for a total of $24,753,610. The Ninth Circuit remanded 

the cases “for entry of judgment in favor of the Commissioner.” Ibid. 

We accordingly directed that decisions would be entered under Rule 155.

The parties have submitted dueling Rule 155 computations. They 

agree that the transferor corporation’s total tax liability is $24,753,610. 

But they disagree as to the extent to which petitioners are liable for this 

debt. Petitioners contend that they are not liable for the penalty or “prenotice” interest, that the IRS has “double counted” the transfers, and 

that they are entitled to reductions for “equitable recoupment.” Finding 

no merit in the arguments petitioners tender in support of their 

computations, we will enter decisions as requested by respondent.

Background

These cases grow out of a stock-sale transaction commonly known 

as an “intermediary company” or “Midco” transaction. Midco transactions, a type of tax shelter, were widely promoted during the late 1990s 

and early 2000s. Fortrend International, LLC (Fortrend), which engineered the deal here, was a leading promoter of Midco transactions. 

It has been involved in numerous cases previously considered by this 

Court.3 In Notice 2001-16, 2001-1 C.B. 730, clarified by Notice 

2008-111, 2008-51 I.R.B. 1299, the IRS listed Midco transactions as “reportable transactions” for Federal income tax purposes.

2 Unless otherwise indicated, all statutory references are to the Internal 

Revenue Code, Title 26 U.S.C., in effect at all relevant times, and all Rule references 

are to the Tax Court Rules of Practice and Procedure.

3 See Tricarichi v. Commissioner (Tricarichi I), T.C. Memo. 2015-201, 110 

T.C.M. (CCH) 370, supplemented by Tricarichi v. Commissioner (Tricarichi II),

T.C. Memo. 2016-132, 112 T.C.M. (CCH) 33, aff’d, Tricarichi v. Commissioner 

(Tricarichi III), 752 F. App’x 455 (9th Cir. 2018), and Tricarichi v. Commissioner 

(Tricarichi IV), 908 F.3d 588 (9th Cir. 2018); Salus Mundi Found. v. Commissioner, 

T.C. Memo. 2012-61, rev’d and remanded, 776 F.3d 1010 (9th Cir. 2014), and vacated 

and remanded sub nom. Diebold Found., Inc. v. Commissioner, 736 F.3d 172 (2d Cir.

2013); Frank Sawyer Tr. of May 1992 v. Commissioner, T.C. Memo. 2011-298, rev’d 

and remanded, 712 F.3d 597 (1st Cir. 2013).
3

[*3] Although Midco tax shelters took various forms, they shared 

several key features. These transactions were chiefly promoted to 

shareholders of closely held C corporations that had large built-in gains. 

The shareholders, while happy about the gains, were typically unhappy 

about the tax consequences. They faced the prospect of paying two levels 

of income tax on these gains: the usual corporate-level tax, followed by 

a shareholder-level tax when the gains were distributed to them as 

dividends or liquidating distributions. And this problem could not be 

avoided by selling the shares. Any rational buyer would insist on a 

discount to the purchase price equal to the built-in tax liability that he 

would be acquiring. See Tricarichi I, 110 T.C.M. (CCH) at 371.

Promoters of Midco transactions offered a purported solution to 

this problem. An “intermediary company” affiliated with the promoter—typically a shell company, often organized offshore—would buy 

the shares of the target company. The target’s cash would transit 

through the Midco to the selling shareholders. After acquiring the 

target’s embedded tax liability, the Midco would engage in a sham transaction purporting to offset the target’s realized gains and eliminate the 

corporate-level tax. The promoter and the target’s shareholders would 

agree to split the dollar value of the corporate tax thus avoided. The 

promoter would keep as its fee a negotiated percentage of the avoided 

corporate tax. The target’s shareholders would keep the balance of the 

avoided corporate tax as a premium above the target’s true net asset 

value (i.e., assets net of accrued tax liability).

In due course the IRS would audit the Midco, disallow the 

fictional losses, and assess the corporate-level tax. But the Midco, 

having distributed its cash to the selling shareholders, would typically 

be asset-less and judgment-proof. The IRS would then be forced “to seek 

payment from other parties involved in the transaction in order to 

satisfy the tax liability the transaction was created to avoid.” Ibid.

(quoting Diebold Found., Inc., 736 F.3d at 176).

The target company here was Slone Broadcasting Company

(Slone Broadcasting), a now-defunct Arizona corporation. It had two 

shareholders: the Slone Revocable Trust (Slone Trust) and the Slone 

Family GST Trust (GST Trust). James Slone and Norma Slone were the 

trustees of the Slone Trust and the grantors of the GST Trust. 

In 2001 Fortrend engineered a Midco transaction for petitioners. 

Slone Broadcasting sold its assets to another broadcasting company for 

$45 million, generating a taxable gain of $38,598,926 and a combined 
4

[*4] Federal and state tax liability of about $15,314,000. See Slone I, 

103 T.C.M. (CCH) at 1266. The trusts then agreed to sell their Slone 

Broadcasting stock to a Fortrend affiliate (Berlinetta). At that point, 

Slone Broadcasting had a net asset value (taking account of its accrued

tax liability) of less than $27 million. Id. at 1267. But Berlinetta agreed 

to pay the trusts for their stock roughly $29.8 million, plus assumption 

of all Federal and state tax liabilities. Ibid.; see Slone IV, 896 F.3d at

1084. Having no appreciable assets, Berlinetta for this purpose 

borrowed $30 million from Rabobank, a Dutch bank that facilitated 

many Midco transactions. See Slone I, 103 T.C.M. (CCH) at 1267; see 

also Tricarichi I, 110 T.C.M. (CCH) at 375 n.5.

At the closing on December 10, 2001, the Slone Trust and the GST 

Trust tendered their shares to Berlinetta and received cash totaling 

$30,819,544 and $2,550,456, respectively. Slone I, 103 T.C.M. (CCH)

at 1268. The Slone Trust subsequently transferred $13,012,396 to Mr. 

Slone and $13,012,396 to Mrs. Slone.

On their joint Federal income tax return for 2001, Mr. and Mrs. 

Slone reported long-term capital gain of $32,765,826 from the stock sale. 

Ibid. (The Slone Trust did not file a Federal income tax return.) The 

GST Trust filed a Form 1041, U.S. Income Tax Return for Estates and 

Trusts, reporting long-term capital gain of $2,542,179 from the stock 

sale. The GST Trust was a grantor trust, see §§ 671–678, and this gain 

was likewise reported on the joint return filed by Mr. and Mrs. Slone as 

grantors, see Slone I, 103 T.C.M. (CCH) at 1268.

On December 12, 2001, two days after the stock sale closed, Slone 

Broadcasting merged with Berlinetta and changed its name to Arizona 

Media Holdings (AMH). Ibid. AMH used the proceeds of the asset sale 

to pay off Berlinetta’s loan from Rabobank, leaving AMH a shell company with a large tax liability and essentially no assets. AMH engaged 

in a sham transaction that purported to eliminate its tax liability. See

Slone IV, 896 F.3d at 1085; Slone I, 103 T.C.M. (CCH) at 1268. In July 

2002 AMH filed a Form 1120, U.S. Corporation Income Tax Return, reporting a $37,885,260 gain from the asset sale and a loss of $38,039,573 

from the sham transaction. Slone I, 103 T.C.M. (CCH) at 1268.4

4 AMH filed this return on a fiscal year basis. Because the relevant transactions and transfers occurred in 2001, for convenience we will refer to this return as 

AMH’s 2001 return.
5

[*5] In March 2005 the IRS initiated an examination of AMH’s 2001 

return. Following that examination AMH submitted a Form 870–AD, 

Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment. AMH, as Slone Broadcasting’s 

successor, thereby accepted for 2001 a Federal income tax deficiency of 

$13,494,884 and an accuracy-related penalty of $2,698,997, for a total 

liability of $16,193,881 (plus accrued interest).

In May 2008 the IRS assessed that liability plus accrued interest. 

Having no meaningful assets, AMH made no payments toward this debt. 

In August 2009 AMH was dissolved by the Arizona secretary of state for 

failure to file its annual report.

Unable to collect the tax from AMH, the IRS initiated a transferee 

liability examination of petitioners. On December 22, 2009, the IRS 

issued Letters 902–T, Notice of Liability, to the Slone Trust and the GST 

Trust, determining that they were liable, as transferees of Slone Broadcasting, for $16,193,881 and $2,550,832, respectively, plus accrued 

interest. See § 6901(a). The IRS issued separate notices of liability to 

Mr. and Mrs. Slone, as transferees of the transferees, determining that 

each was liable for $16,193,881, plus accrued interest. See § 6901(c)(2). 

Petitioners timely petitioned this Court, all residing in Arizona at that 

time.

Following the initial remand from the Ninth Circuit, this Court 

examined the Arizona UFTA to determine whether petitioners were 

liable as transferees. See Slone III, 111 T.C.M. (CCH) at 1558. 

Petitioners contended that the form of the transaction—i.e., a stock sale 

by the Trusts to Berlinetta—should be respected. Respondent 

contended that the form of the transaction should be disregarded and 

that it should be “treated as a liquidating distribution [from Slone 

Broadcasting] for purposes of applying the [Arizona] UFTA.” Ibid.

This Court ruled that petitioners were not liable as transferees 

on the theory that “petitioners and their advisers did not have actual or 

constructive knowledge of Fortrend’s tax strategies” for evading 

payment of Slone Broadcasting’s tax debt. Id. at 1559, 1560–61. The

Ninth Circuit again reversed, concluding that petitioners “were at the 

very least on constructive notice that the entire scheme had no purpose 

other than tax avoidance.” Slone IV, 896 F.3d at 1085. The Ninth 

Circuit accordingly held that the transfer to petitioners was a “constructively fraudulent transfer under the Arizona UFTA” and that petitioners 

are thus “liable to the government for Slone Broadcasting’s federal tax 
6

[*6] obligation as ‘transferees’ under 26 U.S.C. § 6901.” Id. at 1088. The 

Ninth Circuit remanded the cases “for entry of judgment in favor of the 

Commissioner.” Ibid.

In February 2019 we ordered the parties to file computations for 

entry of decision under Rule 155. The parties submitted competing 

computations and memoranda in support of their respective positions.

Discussion

A. Rule 155 Proceedings

In cases such as these, where the substantive issues have been 

resolved (here by the Ninth Circuit), this Court normally directs that 

decisions will be entered under Rule 155. See Vento v. Commissioner, 

152 T.C. 1, 7 (2019), aff’d, 836 F. App’x 607 (9th Cir. 2021). Rule 155 

provides that, “[w]here the Court has filed . . . its opinion . . . determining 

the issues in a case, it may withhold entry of its decision for the purpose 

of permitting the parties to submit computations . . . showing the correct 

amount to be included in the decision.” Rule 155(a). “Rule 155 

computations are designed to ascertain the bottom-line tax effect of the 

determinations made in the Court’s opinion.” Vento, 152 T.C. at 7.

“If the parties’ computations are not in agreement, the Court has 

discretion to afford them ‘an opportunity to be heard in argument 

thereon.’” Id. at 7–8 (quoting Rule 155(b)). “Any argument under this 

Rule will be confined strictly to consideration of the correct computation 

of the amount to be included in the decision resulting from the findings 

and conclusions made by the Court . . . .” Rule 155(c). “A party may not 

use a Rule 155 computation to seek reconsideration of ‘the issues or 

matters disposed of by the Court’s findings and conclusions.’” Vento, 152 

T.C. at 8 (quoting Rule 155(c)). And “no argument will be heard upon or 

consideration given . . . to any new issues.” Rule 155(c); see Vento, 152 

T.C. at 9 (“The Court rigorously enforces the bar against raising new 

issues in a Rule 155 proceeding.”).

B. Analysis

Section 6901 permits the Commissioner to assess a tax liability 

against a person who is “the transferee of assets of a taxpayer who owes 

income tax.” Salus Mundi Found., 776 F.3d at 1017. To impose this 

liability, a court must determine whether “the party [is] substantively 

liable for the transferor’s unpaid taxes under state law” and whether 

that party is a “transferee” within the meaning of section 6901. Slone II, 
7

[*7] 810 F.3d at 604 (quoting Salus Mundi Found., 776 F.3d at 1018). 

The Ninth Circuit resolved both of these questions in respondent’s favor: 

It held that the transfers to petitioners were “constructively fraudulent 

transfer[s] under the Arizona UFTA” and that petitioners were “liable 

to the government for Slone Broadcasting’s federal tax obligation as 

‘transferees’ under 26 U.S.C. § 6901.” Slone IV, 896 F.3d at 1088.

Because petitioners are “transferees” under section 6901, they are 

liable for Slone Broadcasting’s tax liability “up to the limit of the amount 

transferred” to them. See Schussel v. Werfel, 758 F.3d 82, 93 (1st Cir. 

2014), aff’g in part, rev’g in part, and remanding T.C. Memo. 2013-22. 

The parties agree that Slone Broadcasting’s unpaid liability includes 

(among other things) a deficiency of $13,494,884. Mr. and Mrs. Slone 

each received $13,012,396, and the GST Trust received $2,550,456. 

Because the deficiency by itself exceeds each of these amounts, the IRS’s

recovery against these three transferees is capped at the value of the 

assets that each received.

However, the Slone Trust received $30,819,544, an amount that 

exceeds Slone Broadcasting’s total liability of $24,753,610. Respondent 

thus contends that the Slone Trust is liable for the transferor’s entire 

liability, including the deficiency, the accuracy-related penalty of 

$2,698,997, and pre-notice interest of $8,559,729. “Pre-notice interest” 

consists of interest that accrued on the deficiency and penalty under 

section 6601(a) between the due date of AMH’s 2001 tax return and the 

date on which the notices of liability were mailed to petitioners.

Petitioners contend that the Slone Trust is liable only for the 

deficiency and post-notice interest, i.e., interest that accrued after the 

notices of liability were mailed to petitioners. They assert that the IRS 

is improperly “double counting” the transfers, seeking to recover an 

aggregate amount in excess of Slone Broadcasting’s tax liability. And 

they contend that they are entitled to reductions for “equitable 

recoupment.” We address these arguments in turn.

1. Liability for Penalty

Petitioners contend that the IRS is foreclosed from recovering any 

portion of the penalty because “claim[s] for penalties against the 

transferor . . . did not come into existence until long after the transfers 
8

[*8] at issue.” For this proposition they rely on Stanko v. Commissioner, 

209 F.3d 1082 (8th Cir. 2000), rev’g T.C. Memo. 1996-530.

In Stanko the U.S. Court of Appeals for the Eighth Circuit 

interpreted Nebraska law in effect before 1989, when Nebraska adopted 

the UFTA. See id. at 1084 n.1. The court reasoned that “penalties for 

negligent or intentional misconduct by the transferor that occurred 

many months after the transfer . . . are not . . . existing at the time of 

the transfer.” Id. at 1088. The Eighth Circuit concluded that “[a] 

creditor whose debt did not exist at the date of the . . . [transfer] cannot 

have the conveyance declared fraudulent unless he pleads and proves 

that the conveyance was made to defraud subsequent creditors whose 

debts were in contemplation at the time.” Id. at 1087 (quoting U.S. Nat’l 

Bank of Omaha v. Rupe, 296 N.W.2d 474, 476 (Neb. 1980)).

We ruled in Tricarichi I, 110 T.C.M. (CCH) at 385, that the Eighth 

Circuit’s reasoning in Stanko does not apply to cases where liability 

under state law is determined (as it is here) under the UFTA. In 

Tricarichi I that question was governed by Ohio’s UFTA, which 

“differ[ed] from the pre-UFTA Nebraska statute that the Eighth Circuit 

was construing.” Ibid. As we explained, the Ohio UFTA “define[d] 

‘claim’ expansively to include any ‘right to payment’ even if it is 

‘unliquidated’ and ‘unmatured.’” Ibid. (quoting Ohio Rev. Code Ann.

§ 1336.01(C) (West 2003)). “The IRS may thus have a ‘claim’ for the 

penalties whether or not they are thought to have been ‘existing at the 

time of the transfer.’” Ibid. (quoting Stanko, 209 F.3d at 1088). We 

noted that we had “reached the same conclusion concerning transferee 

liability for penalties under the fraudulent transfer laws of other 

States.” Ibid. (citing cases). The Ninth Circuit, to which appeal of the 

instant cases would lie, affirmed our holding. Tricarichi III, 752 

F. App’x 455.

Our analysis in Tricarichi fully applies here. Like the Ohio 

UFTA, the Arizona UFTA defines “claim” as “a right to payment, 

whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured.” Ariz. Rev. Stat. Ann. 

§ 44-1001.2 (2021). The Supreme Court of Arizona has described this 

definition as “unquestionably broadly worded,” ruling that it includes 

“unknown and unasserted claims.” Hullett v. Cousin, 63 P.3d 1029, 1034 

(Ariz. 2003). Thus, the Arizona UFTA supports transferee liability even 

if the penalty were thought to be an “unknown and unasserted claim” 

when the Slone Trust received the transfer.
9

[*9] The Arizona UFTA, moreover, does not require proof that a 

transfer was made to defraud a specific existing creditor (such as the 

IRS). Even if the IRS’s penalty claim were regarded as not being “in 

existence” on the date of the transfer, the Slone Trust would have 

transferee liability under section 44-1004(A)(2) of the Arizona UFTA. 

Under that provision, liability to future (as well as present) creditors 

exists if the transfer was made without the debtor’s receiving “a 

reasonably equivalent value in exchange” and the debtor “intended to 

incur, or believed or reasonably should have believed that he would 

incur, debts beyond his ability to pay as they became due.” Ariz. Rev. 

Stat. Ann. § 44-1004(A)(2)(b); see Slone IV, 896 F.3d at 1086–87 (finding 

petitioners liable under Ariz. Rev. Stat. Ann. § 44-1004(A)(2)); 

cf. Tricarichi I, 110 T.C.M. (CCH) at 385 (holding to same effect under 

Ohio UFTA). For these reasons, we reject petitioners’ argument that 

their transferee liability excludes the accuracy-related penalty.5

Finally, petitioners assert that they have no transferee liability 

for the penalty because respondent failed to meet his burden of production, which (they say) includes showing timely supervisory approval 

under section 6751(b)(1). This argument fails for at least two reasons. 

First, petitioners did not advance this argument at any point during the 

trial or appellate proceedings. Quite the contrary: AMH executed a 

Form 870–AD conceding liability for an accuracy-related penalty of 

$2,698,997. Petitioners’ section 6751(b) argument is thus a “new issue” 

that “may not be raised in the context of a Rule 155 computation.” Vento, 

152 T.C. at 8.

Second, section 7491(c), which imposes a burden of production on 

respondent in certain circumstances, applies only in cases involving “the 

liability of any individual for any penalty.” (Emphasis added.); see

Dynamo Holdings Ltd. P’ship v. Commissioner, 150 T.C. 224, 230 (2018) 

(“[T]he Commissioner does not bear the burden of production with 

5 Petitioners err in relying on Frank Sawyer Trust of May 1992 v. Commissioner, T.C. Memo. 2014-128, 107 T.C.M. (CCH) 1621, 1624, where this Court cited 

Stanko in holding that a transferee was not liable for accuracy-related penalties 

assessed against the transferors. The facts of the instant cases, which must be 

evaluated under Arizona law, differ substantially from those of Frank Sawyer Trust, 

which involved Massachusetts law. The U.S. Court of Appeals for the First Circuit 

accepted our “factual finding that the Trust lacked knowledge—actual or 

constructive—of the new shareholders’ tax avoidance intentions.” Frank Sawyer Tr.

of May 1992, 712 F.3d at 599. Here, by contrast, the Ninth Circuit has determined 

that petitioners had at least constructive knowledge that Slone Broadcasting’s tax 

liabilities would not be satisfied. Slone IV, 896 F.3d at 1087–88.
10

[*10] respect to penalties in a corporate or partnership-level 

proceeding.”). These cases involve the tax liability of Slone 

Broadcasting, a corporation. Although Mr. and Mrs. Slone are 

individuals, the IRS has not determined any distinct penalties against 

them, but rather has determined that they bear transferee liability for 

Slone Broadcasting’s corporate tax debt. 

2. Liability for Pre-Notice Interest

Petitioners next argue that they have no liability for pre-notice 

interest, i.e., interest that accrued on the corporate tax liability through 

December 22, 2009, when the IRS issued the notices of liability. 

Petitioners contend that pre-notice interest “is not recoverable against 

the transferees under Arizona state law.” We addressed and rejected 

substantially the same argument in Tricarichi II.

As we explained in Tricarichi II, the law on this subject has been 

elaborated in a long line of cases dating back many decades. 

Tricarichi II, 112 T.C.M. (CCH) at 35 (citing Cappellini v. 

Commissioner, 16 B.T.A. 802 (1929)). Where “the value of the assets 

distributed to the transferee substantially exceed[s] the transferor’s 

aggregate liability for deficiencies, penalties, and interest, the 

transferee’s liability for interest is governed by, and must be computed 

in accordance with, the Internal Revenue Code.” Ibid. (citing Lowy v. 

Commissioner, 35 T.C. 393, 397 (1960)). On the other hand, if the 

transferred assets are insufficient to satisfy the IRS’s claim against the 

transferor, the IRS may have a further right to collect pre-notice interest 

from the transferee, based on the transferee’s wrongful use of the 

transferred assets. “Th[is] latter right is one that is founded on State 

law, and it is only in such circumstances that it becomes appropriate to 

investigate State law” to determine the IRS’s right to interest. Ibid.

(quoting Lowy, 35 T.C. at 397).

In Tricarichi II we held that the IRS was entitled to recover prenotice interest from the transferee, at the rate specified in section 6621, 

because the transferee “received assets with a value in excess of [the 

transferor’s] total Federal tax liability (including pre-notice interest).” 

Id. at 36. On appeal the Ninth Circuit affirmed that holding. It ruled 

that, where the transferee receives assets with a value exceeding the 

transferor’s liability, the “Internal Revenue Code determines pre-notice 

interest, and the availability of interest under state law is irrelevant.” 

Tricarichi IV, 908 F.3d at 593.
11

[*11] On this point the salient facts of these cases are the same as in 

Tricarichi II. The Slone Trust received cash totaling $30,819,544, but 

Slone Broadcasting’s aggregate Federal tax liability was only 

$24,753,610. Because the Slone Trust received assets with a value that 

exceeded the transferor’s total tax liability (including pre-notice 

interest), the Slone Trust’s liability for interest is governed by Federal 

law, and the availability of interest under Arizona law is irrelevant. We 

thus hold that respondent is entitled to recover pre-notice interest as 

provided in sections 6601(a) and 6621. See Tricarichi II, 112 T.C.M. 

(CCH) at 36–37.6

3. Alleged “Double Counting”

Petitioners urge that the IRS is attempting to “double count” the 

transfers and “impose an aggregate transferee liability . . . that far exceeds” Slone Broadcasting’s debt. Petitioners argue that, for section 

6901 purposes, the assets deemed received by the Slone Trust should be 

reduced to $4,794,752—viz., the assets it actually received ($30,819,544) 

minus the assets it transferred to Mr. and Mrs. Slone ($26,024,792). But 

petitioners cite no authority, and we know of none, for the proposition 

that a transferee may reduce its liability by distributing the transferred 

assets to other persons. Indeed, such a rule would incentivize transferees to make a blizzard of subsequent transfers, hoping to frustrate IRS 

collection efforts.

“Transferee liability is several” under section 6901. Alexander v. 

Commissioner, 61 T.C. 278, 295 (1973); Tricarichi I, 110 T.C.M. (CCH) 

at 386. Petitioners are thus severally liable for Slone Broadcasting’s tax 

debt (up to the value of the assets that each received). “[T]he fact that 

more than one person is responsible for a particular delinquency does 

not relieve another responsible person of her personal liability, nor can 

a responsible person avoid collection against herself on the ground that 

the Government should first collect the tax from someone else.” Woodley 

v. Commissioner, T.C. Memo. 2017-242, 114 T.C.M. (CCH) 625, 628 

(quoting USLIFE Title Ins. Co. of Dallas v. Harbison, 784 F.2d 1238, 

6 Petitioners challenge transferee liability for the pre-notice interest, as for the 

penalty, on the theory that “the claim for interest did not come into existence and begin 

to accrue until nine months after the transfer.” But interest on a tax liability is not a 

claim that is different or separate from the underlying tax debt. Interest accrues 

automatically under Federal law, see § 6601(a), and it is simply part of the debt owed 

by the transferor-taxpayer to the IRS, see Tricarichi IV, 980 F.3d at 592. As explained 

in the text, the Internal Revenue Code, not Arizona law, determines the amount of the 

IRS’s claim against the transferor.
12

[*12] 1243 (5th Cir. 1986)) (discussing joint and several liability under 

section 6672).

Of course, “the tax liability of the transferor can be collected only 

once.” Holmes v. Commissioner, 47 T.C. 622, 627 (1967). Thus, the IRS 

may take no further collection action against any of the transferees once 

Slone Broadcasting’s aggregate tax liability of $24,753,610 (plus postnotice interest) has been satisfied in full. But petitioners cannot reduce 

or eliminate the Slone Trust’s liability for pre-notice interest and the 

accuracy-related penalty by insisting that the IRS must seek recovery 

from Mr. and Mrs. Slone instead. See Morris v. Commissioner, T.C. 

Memo. 2000-381, 80 T.C.M. (CCH) 886, 892.7

4. Equitable Recoupment

Finally, petitioners urge that they are entitled to reduction of 

their transferee liability under the doctrine of “equitable recoupment.” 

This entitlement, they contend, arises as a consequence of the Ninth 

Circuit’s recharacterization of their stock-sale transaction as a liquidating distribution from Slone Broadcasting. Although petitioners may 

have a valid point, their claim for equitable recoupment is not yet ripe.

Petitioners treated the December 2001 transaction as a sale of 

stock to Berlinetta (the Fortrend affiliate), with Berlinetta assuming all 

of Slone Broadcasting’s tax liabilities. Mr. and Mrs. Slone accordingly 

reported, on their 2001 joint tax return, long-term capital gain of 

$35,687,452. Virtually all of this gain, taxable at a 20% rate, was attributable to the Midco transaction.

As it turned out, the sale price that the Slones reported on their 

2001 return was artificially high. That price reflected the assumption 

that Slone Broadcasting’s tax liabilities would be paid by Berlinetta (or 

more likely, never be paid at all). That assumption, of course, was false. 

The Ninth Circuit disregarded the form of the transaction and recharacterized it as a liquidating distribution to petitioners, coupled with 

transferee liability whereby Slone Broadcasting’s tax liabilities have 

now been charged to them. Given this turn of events, petitioners con7 Respondent concedes that, once the transferor’s liability has been fully satisfied, “then, as a matter of law, all liability of the transferees would be extinguished.” 

As respondent notes, however, “it is unknown at this point which of the petitioners will 

choose to or be able to pay.” The IRS is thus entitled to maintain its claims for several 

liability against all four transferees until Slone Broadcasting’s aggregate Federal tax 

liability (plus post-notice interest) has been paid in full.
13

[*13] tend that the capital gain reported on their 2001 return was 

exaggerated, creating the risk of inconsistent taxation.

To remedy this problem, the Slones have recomputed their 2001 

tax liability by reducing their reported capital gain ($35,687,452) by the 

transferee liability imposed on them ($24,753,610), yielding a revised 

capital gain of $10,933,842. Making that substitution on their 2001 

return, they calculate a “corrected” tax liability of $2,125,820, versus the 

$7,078,352 actually reported. The difference between those amounts, or 

$4,952,532, constitutes the amount of “equitable recoupment” to which 

they think they are entitled. Allocating that sum among the four petitioners, they contend that the transferee liability chargeable to them 

should be reduced as follows:8

Transferee Reduction

Mr. Slone $1,931,205

Mrs. Slone 1,931,205

Slone Trust 711,602

GST Trust 378,520

 Total $4,952,532

Equitable recoupment is an equitable remedy designed to prevent 

injustice “where the Government has taxed a single transaction, item, 

or taxable event under two inconsistent theories.” United States v. 

Dalm, 494 U.S. 596, 605 n.5 (1990). Respondent does not dispute that 

this Court has jurisdiction to apply the doctrine. See § 6214(b). But the 

“basic requirement for equitable relief has always been the inadequacy 

of the remedy at law.” Estate of Stein v. Commissioner, 37 T.C. 945, 

956–57 (1962). Section 1341 appears to provide a legal remedy for the 

problem that petitioners have identified.

Section 1341 is captioned “Computation of Tax Where Taxpayer 

Restores Substantial Amount Held Under Claim of Right.” It applies 

where (1) “an item was included in gross income for a prior taxable year

. . . because it appeared that the taxpayer had an unrestricted right to 

such item,” and (2) a deduction is allowable in a later year “because it 

was established after the close of such prior taxable year . . . that the 

taxpayer did not have an unrestricted right to such item or to a portion 

of such item.” § 1341(a)(1) and (2). If these conditions are met, and if 

8 These allocations reflect the assumption, which we have rejected, that the 

Slone Trust’s liability is reduced on account of its transfers to Mr. and Mrs. Slone. See

supra pp. 11–12.
14

[*14] the deduction exceeds $3,000, the taxpayer’s tax for the later year 

is reduced by taking account of this deduction. See § 1341(a)(3), (4), 

and (5).

We have repeatedly held that the remedy of equitable recoupment 

is not available when section 1341 provides an adequate remedy at law:

[W]here a taxpayer has in [one] year received an amount 

from a corporation under a claim of right and paid a tax 

upon the receipt, he is not entitled to recover the tax paid 

in the prior year under a doctrine of equitable recoupment 

when it is later determined that he is liable as transferee 

for tax of the corporation making the distribution to him. 

Maynard Hosp., Inc. v. Commissioner, 54 T.C. 1675, 1676 (1970); see

Estate of Stein, 37 T.C. at 958 (“[E]quitable recoupment is unavailable 

in cases to which section 1341 applies.”); Delpit v. Commissioner, 

T.C. Memo. 1992-297, 63 T.C.M. (CCH) 3053, 3054–55 (same), supplementing T.C. Memo. 1994-147.

Section 1341 thus “provides the appropriate remedy” where a 

transferee is “required to restore payments which he had received under 

a claim of right.” Maynard Hosp., Inc., 54 T.C. at 1676; see Estate of 

Stein, 37 T.C. at 957 (ruling that section 1341 provides “a remedy 

superior to and inclusive of equitable recoupment”); Kardash v. Commissioner, T.C. Memo. 2015-197, 110 T.C.M. (CCH) 353, 356 (same), 

supplementing T.C. Memo. 2015-51. A transferee must therefore pursue 

a claim under section 1341 before seeking equitable recoupment.

Petitioners do not now have an existing claim under section 1341. 

That section applies only if “a deduction is allowable” for the later year. 

§ 1341(a)(2). Petitioners are cash basis taxpayers, and no deduction will 

be allowable on account of their transferee liability until they have paid 

the tax. See Estate of Stein, 37 T.C. at 957 (stating that relief is available 

“in the year of repayment”). We accordingly conclude that neither the 

doctrine of equitable recoupment nor petitioners’ section 1341 claim is 

properly before us in these cases. After paying the tax, petitioners may 

pursue these forms of relief by filing claims for refund and (if their 

claims are denied) by commencing suit in district court, see 28 U.S.C. 
15

[*15] § 1346(a) (2018), or the U.S. Court of Federal Claims, see id.

§ 1491(a).9

To implement the foregoing,

Decisions will be entered in accordance with respondent’s computations.

9 If in a subsequent refund action petitioners are denied relief under section 

1341, an equitable recoupment claim may then become available (so long as they meet 

the relevant requirements). See Estate of Stein, 37 T.C. at 956 n.10 (stating that 

“District Courts have permitted equitable recoupment” if section 1341 does not apply).